How to Make American Manufacturing Great Again

How to Make American Manufacturing Great Again
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Both the Republican and Democratic candidates for president claim to have plans to make manufacturing great again — but neither candidate goes far enough.

Donald Trump mistakenly says the United States doesn’t make anything anymore and promises to restore (somehow) thousands of high-paying manufacturing jobs to U.S. shores if he’s elected. Hillary Clinton wants to invest in training and technology for advanced manufacturing via grants and tax cuts. These are good ideas, but we can do more. 

While issues such as trade agreements and tax policy are certainly important, here are six additional points policymakers should consider in their efforts to create a better future for American workers.

1. Fewer Americans work in manufacturing than before — but the sector is regaining strength. Between 2000 and 2010, the U.S. manufacturing sector lost 5.8 million jobs — over one-third of all jobs in the sector. Since then, we’ve gained back more than 800,000 manufacturing jobs. Over half the value of all the manufactured goods we consume today in the United States is produced right here in our own country. 

2. Manufacturing jobs on average pay more than jobs in other sectors of the economy, but a significant percentage of jobs in manufacturing do not pay a living wage. Most manufacturing jobs pay well because the production process is capital intensive — meaning that most manufacturers depend upon highly skilled and motivated employees to develop advanced processes and keep expensive equipment up and running. On the other end of the scale, however, one-third of manufacturing production workers or their families are enrolled in public safety-net programs such as Medicaid or food stamps.

3. Neither these good jobs nor these low-paying jobs are inevitable. Manufacturers compete with each other using very different “production recipes.” Even within narrow industries, the top 25 percent of firms measured by compensation level pay more than twice as much per worker as the bottom 25 percent. The high-wage firms often can remain profitable because they adopt practices that yield high productivity — but only with a skilled and motivated workforce. These practices include increasing automation while having all workers participate in design and problem-solving. For decades, unions helped ensure both a supply of skilled workers and a fair distribution of the value they helped create; the decline of unions is an important factor facilitating the adoption of low-wage strategies by some employers.

4. Contrary to popular belief, gains in productivity can actually increase the number of jobs. It’s true that when productivity rises, fewer workers are required to make a given number of products. However, demand for those products usually rises with productivity. In fact, those manufacturing industries with greater productivity growth have often seen greater employment growth. Robots and other forms of automation are substituting for production workers, but new jobs are created designing and maintaining robots. Overall, manufacturing has a very large multiplier effect: A dollar more of final demand for U.S. manufactured goods generates $1.48 in other services and production — the highest multiplier of any sector.

5. Smart policy in other areas could increase the number of good manufacturing jobs. In the current environment where real interest rates (interest minus inflation) are actually negative, we can invest in areas of need, such as rebuilding our transportation, water, sewer, energy, and Internet infrastructure, with little or no cost of financing. Seriously fighting climate change would create a large number of manufacturing jobs, too, as we move toward “manufacturing” more of our energy from renewable sources such as wind and solar (instead of buying imported oil), and we invent new energy-efficient products, such as cars and appliances, which will have to be manufactured.  

6. Good jobs for ordinary workers do not have to be limited to manufacturing. Service jobs can also be organized to benefit greatly from skilled and motivated workers. Retailers like Trader Joe’s and Costco combine investment in their employees with low prices, financial success, and industry-leading customer service. As in manufacturing, these companies benefit from having well-trained, flexible workers who can shift with little supervision to do whatever is needed at the moment. Ultimately, companies create a virtuous cycle, paying higher wages, which increases workers’ loyalty and productivity, which, in turn, increases revenue and offsets higher compensation costs.

In debates such as this, which focus on the future of one sector of the economy, people often tend toward extremes — fearing that manufacturing employment will continue to shrink and eventually reach zero, or, hoping to regain the millions of good jobs we lost and restore the sector to its former level. In reality, neither scenario is likely to occur. But good policymaking could bring us closer to the latter than the former. 

Well-designed policies for job creation and innovation can have a positive, long-term impact on all sectors of our economy.

Susan Helper is the Frank Tracy Carlton Professor of Economics at Weatherhead School of Management, Case Western Reserve University. She served as the Chief Economist of the U.S. Department of Commerce from 2013-2015, and as a Senior Economist at the White House Council of Economic Advisors in 2012-2013.

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